Economics

Renegotiation and the efficiency of investments

Article Abstract:

A study was conducted to analyze an investment situation where there is ex ante uncertainty about the result of a possible renegotiation resulting to stochastic disagreement points in the renegotiation. A framework designed to capture some of the important components of long-term relationships was utilized to carry out the analysis. Results indicated that actual wages and prices may be given by an initial contract. Findings also showed an interval for the price of the initial contract supporting a higher expected utility of investors through trading.

Contract damages and cooperative investments

Article Abstract:

A study was conducted to analyze breach remedies during the presence of specific investments that directly benefit the trading partner of an investor. A model featuring a buyer-seller relationship was utilized to carry out the analysis. It characterized a seller's investment as a cooperative investment that increases the buyer's benefit without minimizing the seller's cost of performance. Results indicated that expectation damages supported a poor performance and did not promote cooperative investments.

Sequential-equilibrium investment by regulated firms

Article Abstract:

A study is conducted on the cost-reducing investment decisions of regulated firms using a sequential-equilibrium model. Firms with fixed capital but not price tend to lower rates to combat opportunistic regulatory behavior. This may affect the level of new construction and capacity investment in regulated industries. If a regulator can guarantee a fixed rate-of-return using the equilibrium regulatory strategy, it would eliminate opportunistic regulatory tendencies.